Covering the uninsured: A cost that pays

Access to affordable healthcare in the United States is an entitlement, a perquisite or a fantasy, depending on a seemingly arbitrary matrix of factors. Government insurance programs are available for the elderly, the permanently disabled, people with failing kidneys, the impoverished and children from low-income families. But how poor one has to be to qualify varies from state to state and from year to year. Employees at most large companies and many small ones can take advantage of group insurance plans negotiated by their employers. But millions of people who work in low-paying service, retail or contracting jobs have to seek individual insurance policies, which may be unaffordable or unavailable because of their medical histories. Others obtain insurance with deductibles so high or coverage limits so low that one bad accident or illness could bankrupt them.

It's an irrational system with inhumane and costly results that extend beyond the 47 million uninsured. According to the Kaiser Family Foundation, more than half of the adults without insurance have "no regular source of healthcare" other than an emergency room. They are more than four times as likely as the insured to delay a trip to the doctor, and six to eight times as likely not to get treatment because of the cost. The consequences for the uninsured include more serious ailments and a higher premature death rate; for everyone else, the consequences include the loss of productivity attributable to worker illness, a higher risk of infectious disease and about $50 billion in medical bills passed along by those who couldn't pay them.

Most important, the large and growing number of uninsured Americans make it well-nigh impossible to overhaul the healthcare system to improve quality and control cost. Bringing those people in from the fringes is crucial to changing the system's incentives, shifting from a model that relies on sickness to one that promotes prevention and wellness, increases the supply of primary care and improves coordination among its many elements.

Who needs help

The uninsured fall into three categories: those who can afford coverage but choose not to buy it; those who want it but are excluded by insurers; and those who can't afford it. This mix has led some researchers to complain that the commonly cited Census Bureau statistic of 47 million uninsured is misleading. Just because some can afford to pay for their care, however, doesn't mean the system operates better with gaps in coverage. It just means some of the uninsured will be easier to insure than others.

A portion of the uninsured are eligible for Medicaid or Medicare but haven't signed up, often because they haven't been shown how. Another group is the so-called invincibles, typically young workers who could buy insurance but choose not to. To bring them and others into the system, Congress should require adults to carry health insurance for themselves and their children. It's intrusive, but the logic behind the individual mandate is the same as with auto insurance: to make sure that people have coverage when they need it, and that everyone pays a share of the cost of caring for the ill and injured. More important, it deters people from waiting to obtain insurance until they need expensive treatments -- a problem economists call "adverse selection."

An individual mandate goes hand in hand with two reforms in the way insurers operate. The first would eliminate the practice of charging people more for insurance based on their medical history. Instead, insurers would set rates by region, family size and possibly age, with discounts available to promote healthy lifestyles. The second would require insurers to sell a comprehensive policy to anyone who wanted one. Because these moves would exacerbate the problem of adverse selection, neither makes sense without an individual mandate. Together, however, they would make insurance more available to those who need it most, and would end the noxious practice by some insurers of rescinding coverage following a big claim.

Mandates and subsidies

But Washington can't order people to buy insurance without helping millions of them pay for policies they couldn't otherwise afford. Kaiser estimates that almost 40% of the uninsured in 2007 had family incomes at or below the federal poverty level, and another 29% had incomes less than twice the poverty level. Typical group policies cost $12,200 on average for a family of four in 2007 -- more than a full-time minimum-wage worker earned that year. Even at twice the poverty level, the average premium for a group policy would devour 20% or more of the family's income. Any individual mandate would have to be accompanied by subsidies for those who make too much to qualify for Medicaid but too little to afford a standard insurance plan.

Some reform proposals would also require employers to "play or pay," that is, to insure their workers or help subsidize the policies they buy as individuals. The ostensible purpose would be to encourage employers that already provide insurance to maintain their coverage, while forcing those that don't provide coverage to pick up some of its cost. But just as with individual mandates, requiring employers to buy insurance imposes impossible burdens on many small firms that pay low wages and have thin profit margins, or that hire seasonal employees.

We don't believe a play-or-pay mandate is necessary to keep employers from dropping coverage. The competition for workers will do that. Nevertheless, it's legitimate to ask why some employers -- or more accurately, their workers -- shoulder the cost of the healthcare system when others do not. That's why a limited mandate, scaled to the size of the business and its payroll, may be in order. If a company can't afford the extra cost, it could opt out by paying a tax based on the size of its payroll. But lawmakers would be better off with too weak a mandate than one that imposes too high a tax. As Massachusetts' experience has shown, a less-than-rigorous mandate can still lead to a significant expansion in employer-based coverage.

Increasing competition

Bringing the uninsured and underinsured completely into the system will set the table for reforms that improve care and save money for everyone. The Commonwealth Fund recently estimated that the cumulative savings from these reforms could be $1.2 trillion to $3 trillion by 2020. But those savings don't represent actual reductions in the cost of healthcare; they represent how much less those costs are expected to increase. Similarly, providing insurance for millions of low-income Americans should drive down inefficiency and cost-shifting within the system; instead of getting much of their treatment in expensive emergency rooms and passing the costs on to people with private insurance, they can get more routine and preventive care paid for by their own policies. But taxpayers will have to bear much of the cost of providing that coverage, which the Congressional Budget Office has estimated to be at least $1 trillion over the next decade.

In short, shifting to universal coverage will generate a mix of costs and benefits, with some segments of the economy taking on more of the burden and others less. The biggest potential winners would be healthcare providers, whose services would be in greater demand from the newly insured, and private insurers, who stand to pick up millions of new, federally subsidized customers. In fact, the expansion could yield a windfall for insurers or healthcare providers that dominate a market.

That's why it's important to promote competition while imposing insurance mandates, starting by creating one-stop shopping exchanges where people can compare and purchase policies that meet a minimum standard for coverage. Although it's a lightning rod for critics, the idea of the government establishing public insurance plans to vie with private ones for subsidized policies is worth exploring. It's a potential counterweight to the power wielded by a single healthcare provider or insurer in too many communities, a recent Urban Institute study contends.

A good model is L.A. Care Health Plan, one of the county-based plans that California created in the early 1990s to manage the care of Medi-Cal patients. Unlike Medicare or Medicaid, which can dictate prices, it has to negotiate rates with doctors and hospitals just as its private competition does. And it's steered by a board of healthcare providers, patients and county officials with a directive to preserve the safety net, which has encouraged it to pursue the best care at the least cost. The new public plans could take on a similar civic mission: to help develop prevention- and wellness-focused approaches to care.

We can't kid ourselves: Expanding insurance coverage is expensive. It also raises thorny questions about how far to go, including whether to cover illegal immigrants and how to enforce the individual mandate. But the payoff is a real one, with the benefits mounting over the long term in the form of a rational healthcare system that delivers increasing value for the money. It's a price worth paying.